Future wine markets of the world

Wine producers around the planet are watching wine growth in the BRIC countries closely, waiting for the day when every Chinese citizen consumes a glass of wine or two after work every day, solving the world oversupply problem in one sip. Until that happy day, looking at smaller emerging markets may also be worthwhile. One of the best ways to find out where those are, is to look at where the New World countries—never slow when it comes to marketing opportunities—are selling wines. According to Wines of Chile, for example, Colombia buys more than 4m litres of Chilean wine each year, while the Czech Republic takes 4.5m.

Australia’s Lion Nathan Wine, on the other hand, is excited by Poland: “The radical changes in the local economy have totally changed Polish drinking habits,” says managing director Anthony Roberts. “We’ve also noticed a definite trade-up. We’re selling virtually exclusively to the on-trade and independents and sales are growing healthily – doubling in the past two years!”

Marc Allgrove, international sales manager of Constellation Wines Australia, thinks the Philippines has possibilities. “It’s still a poor country, but its colonial history with Spain has meant that the local market has a higher propensity to consume alcohol than the rest of Asia.”

Then there’s the surprising revelation from Wines of South Africa that they’re selling wines to Angola, until recently a corrupt, war-torn basket case.

Emerging markets are, almost by definition, not easy to get into, particularly if they are recovering from war. But in our survey of tiny emerging markets, we found three that show particular promise.

Dubai

Although Dubai only has a population of 1.4m people, it’s wealthy, with a 2005 GDP of $37bn. The ruling Al Maktoum family want Dubai to become a major business centre, and are bringing in large numbers of foreign workers and professionals—including wine drinking Westerners.

Claire Townsend, sales manager at Bibendum Wine International, which sells its Argentinean brand Argento into Dubai, says the city’s wine market is well organised.“Eighty percent of wine sales are through hotels and restaurants, while 20% goes through retail,” she says. “The way to the market is still through beer and spirits. The way wine is sold is closer to branded spirits.”

She adds that because the government doesn’t allow the advertising of alcohol, business must be done at a personal level. “The trade marketing and wine dinners have to be sophisticated.”

Lion Nathan’s Roberts agrees. “Dubai’s hotels are attracting many of the world’s top sommeliers who, in contrast to working in some recession-sensitive European markets, have the freedom to create the wine list of their dreams,” he says. “We anticipate excellent growth ahead.”

There are only two distributors, MMI and African & Eastern. Nick Midwood, MMI’s general manager of wine, says Dubai’s market is growing at 30% per annum, roughly split between 70% on-trade and 30% off. “Only the importers and distributors can operate retail units and of these there are currently 18.”

Townsend says Dubai can be a very flamboyant market with a thirst for Champagne, partly because there are so many Russians. But, being an Islamic emirate, will not allow Muslims to buy alcohol and everyone else needs an individual alcohol license.“This will give a fine amount per month that can be spent,” explains Midwood. “The average value is $150. Once this total is reached there can be no purchase until the following month and the value is back at zero.”

The alcohol license doesn’t necessarily buy much, because average prices are high. “There is 50% duty levied on CIF and a 30% sales tax at the point of purchase,” says Midwood. “The duty structure funnels consumers to the lower end of the market and the volume of retail wines are sold below Dirhams 40 ($10.80/€7.38). We have avoided, consciously and subconsciously, the disastrous straitjacket of price points and thus polarizing what we can do.”

The market for wine in the total United Arab Emirates, including all buying points, domestic, duty free and airlines, is around 1.5m 9L cases. Dubai itself consumes around 700,000 of those cases, with Midwood saying growth it expected to rise at 30% per annum.

Vietnam

Vietnam may be a communist country, but that doesn’t mean it’s not open to the finer things of life. Among its 86m population is an emerging middle class that is beginning to find wine interesting.

Guillaume Blanchard, key account manager for Saigon-based Les Celliers D’Asie, says wine sales are being driven by social change. “Wine is a status symbol,” he says. “If you’re drinking wine or Champagne it shows you are definitely somebody.”

Jim Cawood of VINO, a distributor based in Ho Chi Minh City, says that while the overall market is still based on tourists and the ex-pat community, it’s growing at the rate of 30% to 40% a year. “Vietnamese customers have an average spend that’s better,” he says. The changing role of women is partly responsible. “A lot of young professional women now have important managerial positions and they do business with foreign clients. It’s not culturally acceptable for them to go to karaoke bars and get plastered, and the foreign businessmen don’t like it either. But to have a glass of wine is acceptable.”

Cawood, who has been in Vietnam for three years, importing names like Petaluma, Wither Hills and Marchesi de Frescobaldi, says the Vietnamese are also coming to the end of what he calls their ‘whiskey phase’: “They start with rice spirit, then beer, then whiskey, then Cognac,” he says, adding that Vietnam is now the second biggest market in the world for Johnny Walker Blue Label. “Because a bottle of Johnny Walker Red costs $10, people think anything cheaper can’t have any quality.” Cawood says the biggest mistake importers make is trying to enter the market with cheap wines. “If Vietnamese consumers are going to buy wine it has to look expensive and be expensive,” he says. “If someone gets a bottle of wine as a gift, they will often ring us and ask the price, because when they give a present back, they need to know what the wine was worth.” He says people normally spend around $30 a bottle when giving wine as a gift and so mass market wines like Yellow Tail find it hard to get established.

Wine knowledge is still an issue, with both importers saying that many consumers don’t know the difference between whiskey, wine and Cognac. Trying to take advantage of this lack of knowledge, however, is a big mistake. Cawood says that until the last few years, the market was dominated by French wine, but although they are still prestigious, “there has been a massive swing away from French wine, because they were dumping wines they couldn’t sell in France in the belief that the Vietnamese wouldn’t know the difference,” he says. “France is about 36% of the market at the moment. It was 56%, so they’ve lost a bit.” The next two biggest importers are Australia and then Chile.

Wine is mostly sold in bars, restaurants and hotels, rather than for private consumption. “There are dedicated Western style wine shops,” says Cawood. “But in Ho Chi Minh city there are only three, which is not many for eight million people.” Overall he is positive about future prospects, saying that in “Vietnam, when things change there is rapid take-up,” adding that “Vietnam is a much more homogenous nation than China and the scale there is so massive that things can’t change so quickly. The Vietnamese market is still untouched.”

Angola

Less than a decade ago, Angola, was a hellhole, torn apart by one a 27-year-old civil war, a deadly relic from the Cold War. Today, Angola’s people are still some of the poorest in sub-Saharan Africa, but the country is Africa’s second largest producer of oil and diamonds, which is bringing wealthy into the now peaceful country.

“Angola bought a lot of wine in the past,” says Paulo Amorim, president of ViniPortugal. “It went through a non-buying period during the civil war years. When peace came, imports started growing again.”

Duncan Bonnett, a director of South African research consultancy Whitehouse & Associates, says Angola is the biggest market for wine in Africa after South Africa. “The market in Angola grew from around $24m (€16m) in 2002 to over $80m in 2006 – an increase of about 229%.”

The key supplier is Portugal at 64%, which is not surprising, given that Angola is a former Portuguese colony and the official language is Portuguese. Spain is number two at 23%, with South Africa at 4%.

“In terms of price, the wines we surveyed ranged from $1.80 per litre to around $50 for a bottle of good red at retail level,” says Bonnett. “Importers are generally putting about a 25% markup on their goods, with retailers adding another 25% to 50%, although the hospitality sector adds anything from 70% to 250% on to the price.” He says this means that if you look at the overall market, you could probably double the import value and put it around $160m in 2006 dollars.

When it comes to bottled wines, reds are the most popular and available in a wider range, priced from $4 to $20. “They mainly drink table wine, not only cheap stuff, but more expensive brands which are consumed by the elite linked to political power,” says Amorim. “FOB prices vary from €0.80 per one litre to €5.00 per 0.75ml bottle of better stuff. You will also find some of the most expensive and niche wines from Portugal.”

Ordinary mortals mostly drink Catembre, a popular mix of low quality bulk red wine that retails for $1 a litre, mixed with Coke. Along with cheap European and South African bulk, there is also wine from Latin America entering the country, though Bonnett says “it’s an opportunistic thing, where someone will just ship through a couple of containers of wine every few months without building a brand.”

Wine dumping may turn out to be a shortsighted strategy. Angola’s median age is 18, and these young people are likely to trade up from Catembre as they get older and wealthier. Secondly, the speed of reconstruction is pulling in wine-drinking foreign workers. “The number of hotels being built in Angola is amazing,” says Bonnett. “There is a huge shortage of hotel accommodation, because as soon as a hotel is finished, the oil companies block book the rooms.”

Whitehouse & Associates identified around 30 key companies involved in wine exports, including importers, distributors and wine bottlers. Some are devoted to wine, while others are large supermarket groups that do their own importing. The key importers are Angolan, though there are some Portuguese ex-pats running import businesses, along with Portuguese importers with head offices in Portugal. Corruption is not as much of a problem as it was, as Bonnett says the Angolans have outsourced both port operations and customs to a European consortium and are very keen to maximize income from customs duties.

Amorim says the market, for Portuguese wines at least, can’t continue to grow at its breakneck speed and says each new wine listed tends to cannibalise the market share of its competitors. But Antonio Estarreja, senior manager of Portuguese producer Esporao, whose Monteveleho is Angola’s most popular Portuguese wine, remains confident, saying their exports are increasing at 80% a year. “Their economy is very strong in petrol and diamonds. They have water, they have cocoa, coffee, everything.” Except infrastructure, which they are building as quickly as they can. “They need everything,” he says. “The nightlife is building up very fast and they are building supermarkets in the provinces, so wine is spreading inside the country.”
Felicity Carter

This article first appeared in Meininger’s Wine Business International in 2008.

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